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Alternatives to Rare Earth Elements

Toyota to China: Screw You and Your Rare Earths!

Written by Jeff Siegel
Posted January 17, 2011

Back in April 2010, I published an article called "5 Rare Earth Stocks to Hedge Against Chinese Control."

In that piece, I wrote:

Because 95% of the world's rare earth elements are produced in China, it is becoming increasingly urgent for developers to find REEs in other parts of the world.

This becomes more and more apparent every time I talk to high-performance battery manufacturers and companies that rely on rare earth magnets for things like wind turbines and energy efficient electric motors.

Bottom line: China needs those REE supplies for its own consumption.

And in the not-too-distant future, those supplies found outside the Middle Kingdom will be the only supplies we'll be able to get our hands on.

So here are a few companies that are operating in this sector, and are not based in China:

  • Avalon Rare Metals, Inc. (TSX: AVL) projects in Canada
  • Great Western Minerals Group (TSX-V: GWG) projects in Canada, South Africa, and the U.S.
  • Hudson Resources, Inc. (TSX-V: HUD) projects in Greenland
  • Rare Earth Metals (TSX- V:RA) projects in Canada
  • Commerce Resources Corp. (TSX- V:CCE) projects in Canada

And of course, there's Molycorp, which has just recently filed to go public. This company is looking to develop operations in Mountain Pass, California, just about 15 miles from the Nevada border.

Since that article, rare earth stocks soared.

In fact, of the five listed in that article, all delivered massive gains by the end of the year:

  • Avalon Rare Metals up 158%
  • Great Western Minerals – up 221%
  • Hudson Resources – up 118%
  • Rare Earth Metals – up 78%
  • Commerce Resources – up 135%

And Molycorp (NYSE: MCP), which was just getting ready to go public when I wrote that piece, delivered gains in excess of 293% by the end of the year!

I do hope you jumped on some of those and made a few bucks.

But if you didn't, don't worry. Because very soon, there may be another rare earth angle for us to play...

And the gains could be just as impressive.

Weaning the rare earth burden

It's no secret that China produces more than 95% of the world's rare earth elements.

It's also no secret that China cut its export quotas by 72 percent in the second half of 2010 — then 35 percent for the first half of 2011.

For those who need these rare earths, China's got 'em by the short hairs.

Of course, this has been an amazing opportunity for investors in rare earths...

But it could also soon prove to be an amazing opportunity for forward-thinking companies that aren't wasting any time trying to find alternatives for their rare earth needs.

Building a better electric mousetrap

Toyota (NYSE: TM) recently announced it's very close to developing new electric motors for its hybrid cars — motors that don't depend on robust supplies of rare earth metals.

According to Toyota engineers, they're working on an inductive motor that's much more efficient (and lighter) than the type they're using now in the Prius.

This doesn't mean Toyota's banking on immediately eliminating its need for rare earths; in fact last month, the company announced it was building a rare earth processing plant in India.

But it's no secret now that most companies relying on rare earths are desperately trying to find products that can help hedge against Chinese control of rare earths.

In fact, back in November, we reported on a company called NovaTorque, which has developed an electric motor that uses ferrite magnets in place of rare earth metals like neodymium.

The motor design also requires about half as much copper and 40% less steel than competing motors.

Also worth noting is German auto parts maker Continental AG (CTTAY.PK), which has already come up with its own motor that doesn't require rare earths.

As China continues to secure its rare earth supplies for its own needs, the search for non-Chinese-controlled rare earths will continue...

But so will the search for new technologies that simply don't require rare earth metals.

And rest assured, if there's an opportunity for us to pounce on any of these technologies, we'll be there.

To a new way of life, and a new generation of wealth...

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Jeff
Editor, Energy and Capital

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